Virtual Offices for Your offshore Business: Offshore Substance and Other Concerns

Your offshore business office set-up can be a challenging issue. We are here to help you solve it.

On the one hand, you may need to arrange it in compliance with the offshore company incorporation regulations in a particular jurisdiction. On the other hand, every smart entrepreneur is looking to cut costs. 

This is particularly relevant now that the pandemic has prompted the lockdown of business premises all over the globe. Many companies are successfully run remotely.  Shouldn’t you consider virtual offices or other less costly alternatives to conventional office spaces?

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In most jurisdictions, virtual offices (VO) are legitimate and functionally viable units on a par with brick-and-mortar offices. They have the mailing address, telephone lines, receptionist’s services, and even scheduling of meetings (in web conferencing format). At the same time, the overall VO package prices are usually much more affordable for startups: including office space rental, equipment, stationery expenses, and other overheads such as coffee. 

But would it be sufficient and safe to use your virtual office details for registration of a company if its business profile and license require physical presence and income-generating activities in the jurisdiction of incorporation? 

This article covers many typical intricate aspects of an offshore business office set-up –  particularly in the zero- and low-tax jurisdictions. As for more specific questions, they need to be considered on a case-by-case basis. You are welcome to send us your questions to our e-mail address given above and book a FREE one-on-one Zoom consultation on substance-related matters or any other aspect of company incorporation, banking and operation in the offshore world. 

What should you consider when planning your company’s offshore business office?

The planning of a company set-up has always implied the availability of some premises for managing its commercial activities. In the past, a physical office was considered the only justified and reliable option: Hobson’s choice. The costs of the staff, meeting rooms, regular rent payments, and occasional repairs were inevitable.

But at the end of the twentieth century, it became clear that a virtual business office could be quite a competitive option. It can meet most of the needs of companies, save them a lot of money, and reduce the risk of adverse developments in force majeure situations. Since the rapid roll-out of the COVID-19 pandemic, many companies have turned to telecommuting and moved to virtual offices. In expensive cities like London, New York and San Francisco, nearly all start-ups these days use virtual offices.

Virtual offices are often available in serviced office centers, or even hotels or members’  clubs. They allow companies to have the best of both worlds – to choose a la carte from a menu of physical and digital office services:

Physical

  • a business address to receive post and courier packages;
  • a receptionist meeting visitors and taking calls (probably the telephone receptionist will in turn be working remotely, not from expensive city centre premises);
  • a mailbox or another storage for corporate correspondence (to be picked up or forwarded);
  • convenient well-equipped meeting room(s);
  • hot desks (in a coworking space, to be rented by the hour or by the day);
  • office equipment (copy machines, fax machines, computers, whiteboards, etc.);
  • concierge service (restaurant reservations, car pooling etc).

Digital:

  • reliable digital communication channels (Internet, fax, VoIP, e-mail, voice mail, messengers, telephone(s));
  • a corporate telephone number;
  • a remote receptionist/virtual assistant for corporate tasks;
  • cloud data storage and Internet-based services.

A virtual business office performing all the basic functions of the physical office boasts in most jurisdictions the same legal status as a physical office. However, when planning your company’s offshore incorporation and substance, the following factors should be considered:

  • Incorporation of a company generating income in certain restricted fields (e.g., insurance, shipping, banking, some other activities specified by the relevant jurisdiction)  requires economic substance. The legitimate status of virtual offices depends largely on the jurisdiction of incorporation. In most cases, a virtual office can be sufficient for conducting commercial activities.
  • The set-up of an official representative office (even if the office is virtual) in some jurisdictions may automatically make the company a tax resident (with some reservations).
  • A virtual office can be opened for the parent or holding company, as well as for its branch (representative office, subsidiary, satellite office) with a bank account, local staff, contracts, etc.  
  • If your offshore business needs an account with a reputable bank, you will have to submit proof of the company’s or its subsidiary’s actual presence in the bank’s jurisdiction (legal address, utility bills, wage slip, and other details as required).
  • The maintenance of a virtual office does not involve significant financial expenses.
  • The rent of any office is mostly a temporary solution that needs to be renewed every year. 

Alternative options for your offshore business office

A recently started business is often underfunded. Therefore, any solution that allows you to optimize your set-up or startup costs is most welcome. But you should understand that saving money here and now may not turn out to be as profitable in the mid-term future. Therefore, your arrangements for a company office should be carefully thought out even before the company is registered.

The possible office options are as follows:

  • Conventional brick-and-mortar office. This is the most costly option. The relevant overheads are compensated by the guaranteed compliance with the substance regulations (when relevant), privacy, conveniences, continuity in the future.
  • Virtual business office. This is a good option when the company’s separate physical premises /building is not a must-have for the company.
  • A private mailbox. It is just a lockable mailbox, not an office. It allows you only to receive/forward correspondence. In terms of an offshore company’s substance, this may not be sufficient. Most often such services are provided by chains like MBE (Mail Boxes Etc) also known as the UPS Store.
  • Coworking space. This is a shared collaborative workspace for hotdesking. It can be a compromise between a virtual office and a conventional office. Co-working can be convenient and cost-effective and is sufficient for all bank and tax office requirements. Moreover, such offices may offer virtual office services and thus be a hybrid option.

Comparison of virtual and physical offshore business offices

The desire to optimize costs is justified at the stage of starting a business – startup, bank account opening, and planning regular commercial activities. However, attempts to economize should not be an end in itself. Consider all available options, even if some of them do not seem promising at first sight.

The following features can be inherent to both a traditional office and a virtual business office:

  • a properly equipped place for work, business meetings, company management;
  • a legal or registered office address;
  • a communication channel with government and regulatory agencies;
  • the proof of presence in a particular jurisdiction (city, state, island etc);
  • a basic set of business (organizational, representative) services.

It may seem that the virtual business office does not provide any other advantages except for cost-cutting benefits, but it is not so. The features described above can be flexibly configured and adjusted to your specific requirements. In the case of a conventional office, such actions will most likely require some investment. While changes are in progress, normal functioning of the office may be disrupted. Besides lower costs, the flexibility of operation, adjustments, and rearrangements are key benefits.

Please note that in most jurisdictions, company incorporation requires actual presence in the jurisdiction (substance). A virtual or co-working office option is usually a great solution! Please discuss this issue with our experts during a free consultation.

Benefits of a virtual or co-working office for an offshore business:

  • Partners/customers’ trust and satisfaction. A dedicated remote employee who handles your corporate correspondence and always takes calls is a much more preferable convenience, compared to a CEO combining his/her responsibilities with that of a secretary!
  • Office housekeeping and chores. The amount of administrative hassle depends on the type/structure/area of your business. But even when it is rather modestly arranged, a virtual office provides a significantly more comfortable working environment. You won’t have to bother about the office/building repair, furniture, entrance security, hygienic and cleaning matters, staff relations, other chores inevitable in a physical office.
  • Customer services. Any company running nowadays a ‘conventional’ offshore business still communicates with its customers mostly over the internet. There are occasions, however, when the end-user of your services or product needs a personal meeting. The technical department may be at times bombarded with too many requests, and there are no available specialists to take orders or questions. In these cases, an additional well-trained virtual office employee with sufficient expertise can solve most problems. Thus, a virtual office can be a very convenient and flexible solution. 
  • Technical maintenance. Almost any virtual business office (except for the low-end options) needs technical support or a help desk in case of hardware/software failure or updates. The repair, maintenance, software upgrades issues can be entrusted to an outsourced third party.

Possible hybrid options for offshore business offices

Effective application of new technologies is a complex task. In addition to financial costs, you will have to deal with staff training, adaptation/adjustment of the business model, weed out non-viable options. It is much easier to resolve this challenge if you have a virtual office. However, some hybrid options may prove to be also beneficial.

  • A local business address + a mailbox for corporate correspondence. This is an ideal option for small businesses, especially in jurisdictions where a home address (of the professional or nominee director, for example) is allowed as a legal shipping/billing corporate address.
  • A legal address with a registered agent plus the agent’s mail forwarding and some other services. Renting a legal address with a registered agent is a popular option. This is how you can resolve many issues, including the prompt pickup of your mail – from banks for example – and its timely scanning and forwarding to you. No important messages will be lost or read too late. 
  • A virtual business office + a physical address outside the offshore jurisdiction for banks, vendors, customers, promotion, etc.  If you have a branch outside an offshore jurisdiction, you may use the physical address of the branch for many purposes, including the bank account set-up, promotion, public directories, postal communication with customers, vendors, etc. We particularly recommend Serbian branches for this service.
  • Telecommuting + occasional in-person meetings in public facilities. Cafes, restaurants, co-working spaces, and other public spaces can be occasionally rented for a few hours for in-person meetings. Otherwise, particularly during the pandemic, your virtual office can use web conferencing for effective business communication. Many companies do not spend their funds on expensive office rent any longer.
  • Virtual office + in-house call center, help desk, customer service. The relevant services do not depend any longer on costly arrangements affordable in the past only to major companies.  Today’s virtual business offices can offer hotlines available to customers on any occasion. As it has been mentioned above, virtual offices can be extended by engaging extra staff whenever needed. VoIP (Voice over Internet Protocol) telephone services are inexpensive. Besides, you can obtain local telephone numbers and take local calls practically anywhere in the world.

Please note that there can be several addresses serving different objectives of your company. However, the legal address, the tax residence, the license, and the banking concerns are the most important interrelated issues. You are welcome to discuss during the FREE consultation with our experts what you should choose from the multiple options.

Variety and selection of providers of virtual offices for offshore business

The variety of available providers offering the rent of virtual offices is both a great benefit and a challenge.  Our InternationalWealth experts are ready to recommend several very promising options and warn against scammers. To discuss the topic of planning the company’s substance: legal, banking, mailing, promotion, and other addresses, and the choice of the virtual office provider, please book a FREE consultation and send us your questions by writing to our e-mail address or WhatsApp/Telegram/Signal given at the top of this page. 

Here is a list of questions you can discuss with our experts:

  • The profile, objectives, and needs of your company at the first stage of development.
  • The possible plans and future needs of your company.
  • The basic services available from the virtual office provider(s).
  • Availability of optional services, their prices.
  • Limitations of virtual offices promoted by a particular provider.
  • Opportunities and tools for integrating a call center/help desk/VoIP customer service in the virtual office.
  • Availability of 24/7 service, irrespective of the time zones.
  • The jurisdiction of the provider.
  • The language and possible communication challenges on the provider’s side.
  • Opportunities for customization of the design to match your house style.
  • Estimations of the possible future expenses and your budget.
  • The mailing address: the actual location, who else uses it.

Please note that whatever your choice, the actual physical presence (substance) of your company in the jurisdiction is a much more reliable and in some cases inevitable option.

For you to avoid costly mistakes and scammers, we advise you to discuss with a professional expert the choice of the provider of your virtual office. Unfortunately, the internet is full of offers that in reality are not what they advertise. Many providers simply do not understand how foreign companies need “substance”  because these are not requirements that exist locally. This applies in the UK, USA and Canada for example. 

The typical traps and pitfalls are as follows:

  • SEO-optimization can be the provider’s vested interest. That is, the use of your texts and key phrases to promote the provider’s website and services in search engines may be the primary concern of the provider.
  • Misconceptions and doubletalk. For example, instead of a fully functional virtual business office, you may get just a remote mailbox that has been resold a few times through intermediaries.
  • Concealment of important issues. For example, the tax residency of the company may depend on the jurisdiction of your (even virtual) office address.
  • The basic package of services may be limited. Even if it is reasonably priced, the extended list of (optional) services is either shorter or very expensive. You may later find out that the use of virtual conference rooms, 24-hour technical support, corporate e-mail, and some other essential services are unavailable or priced separately above the package fee.
  • The business/mailing address offered with the virtual office may be shared by many businesses and have a dubious or bad reputation.
  • The level of privacy/data security may not meet your expectations and needs. 
  • Your business identity theft: your corporate resources in the virtual office may be misused by fraudsters for illegal purposes.

The future of virtual offices for offshore business

Technology is constantly evolving, and many processes are being moved online. Business development does not require any longer a physical offline presence. Virtual business offices are becoming more digital and more popular, and the COVID-19 pandemic has greatly contributed to this. Many offshore jurisdictions allow remote company registration, while customer services rely on modern digital communication technologies. 

Our experts forecast the following changes in the modern workspace soon:

  • More businesses will seek a virtual office instead of a conventional brick-and-mortar space. (As we already see happening in London, New York, San Francisco etc)
  • More businesses will recruit freelancers for offsite work (from homes or on the road) instead of full-time office employees.
  • Companies will be able to hire highly skilled talents all over the globe. Their physical location will make no difference for a virtual office performance. Larger hiring can be done, as a virtual office has no limits
  • Digitalization of all business processes will drive a routine use of telecommuting, online conferencing, virtual offices.
  • Work will be performed from home, office, and satellite/virtual offices. Thus, the workspace will be a hybrid of multiple modes of working from different locations.
  • New and existing technologies (IoT, AI, AR, VR, blockchain, 3D Printing, drones, robots) will substitute some business processes and decrease office rent and maintenance costs.
  • Data access and data security will be given a higher priority to enable seamless virtual collaboration.
  • Channels of personal communication (social networks, messengers) will be supporting business purposes.

Will a virtual business office be a better option for you? It depends on the type of your business, your objectives, and many other aspects, including the choice of the country for the incorporation of your company. Some jurisdictions require the local substance for banking or tax residence, but this requirement can be fulfilled via a local virtual office. You are welcome to discuss with our professional experts all options, considering the opportunities for setting up a bank account, economic substance, tax residency, asset diversification and choose the most advantageous type of your business base.

Is the registration of an offshore company the best cost-effective business strategy?

This question cannot be answered simply. The costs and the performance depend on your objectives and many other variables. In the past, offshore tax havens were chosen by business owners mostly in pursuit of zero or low taxes. As of today, some onshore countries also offer reasonably low taxes, tax-free economic zones, and maintain double taxation avoidance treaties. If you are interested in alternatives to tropical jurisdictions, you can consider the following options: 1) an LP or LLP set up in a suitable jurisdiction (usually the British Commonwealth, Canada, Scotland, Ireland) as a partnership that is not taxable (while its members pay taxes according to their shares and taxation regulations in their jurisdictions); 2) a midshore company set up in any of the European low-tax countries (e.g., Luxembourg, Andorra, Serbia, Hungary); 3) a company registered in some high-profile jurisdiction in pursuit of priorities other than business activities development (e.g., to deposit funds with a bank in Switzerland). Company incorporation in an offshore jurisdiction may be chosen for different reasons: asset protection, data security, mitigation of currency control, simplified reporting and audits, high-quality banking, risk avoidance, etc. Therefore, offshore company registration is not the only winning strategy. There can be many cost-effective solutions which you can discuss with our professional experts. 

Where can an offshore company open an account?

An offshore company can choose whether to open a bank account in its jurisdiction of incorporation, or elsewhere. In some cases (like Marshall Islands) there are no local banks servicing international business so companies typically open their accounts in USA, Europe, Singapore etc.
Another good option is an account with a payment system like an EMI, a neo-bank, or other fintech providers. Every option has its advantages and disadvantages. You are welcome to discuss them with our experts. 
As for the immediate recommendation, you should pay attention to the following important points: 
– how can you open and use the account (remotely, during in-person visits, either way);
– the bank’s policy towards blacklisted/sanctioned/undesirable jurisdictions and activities;
– the status of the bank (universal, private, merchant,investment, savings); 
– compliance procedures;
– minimum balance requirements;
– ease and efficiency of online banking;
– valid tariffs, or specially negotiated tariffs; 
– reputation/prestige of the bank;
– geographical location (time zone);
– requirements for references and unusual document certifications;
– special incentives for certain categories of customers.

What factors affect the tax status of an offshore company?

It largely depends on the jurisdiction where it a) is registered; b) does business; c) where its beneficial owners are. 
Most often, an offshore company is a non-resident company, the type/amount of taxes is regulated by the national legislation. The tax status may depend on the following factors: 1) the permanent presence (office) in the jurisdiction; 2) the current tax residency status; 3) employment of a local CEO;  4) corporate documents bearing the signature of a person (Director, the person with the power of attorney) who is a resident of the jurisdiction; 5) a special agreement between the two countries (the jurisdiction of the company incorporation and the jurisdiction of its actual business activity). For more information please contact our experts.

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